Artur Baluszynski, head of research at Henderson Rowe, said the ECB pushing rates further into negative territory is “essentially a tax on eurozone banks, and for the already weakened bank-financed economy like the eurozone, this move could spell more trouble.”

Two other measures are more likely to provide actual stimulus. The ECB also announced they would be buying 20 billion Euros per month of “net asset purchases”, for “as long as necessary”. This rather vague statement usually translates to “we’re buying bank bonds and some stocks”, although in Japan it quickly moved to “we’re buying stocks to prop up the stock market”.

The other move is a two-tiered interest rate system, to give banks who are meeting ECB lending targets access to money at lower interest rates. Should be no surprise that banking heads lobbied for this during the last earnings reporting season.

Silver and gold, which had been hovering around critical levels this week, popped slightly on the announcement. For international silver the critical level right now is 18 USD/oz, correlating to 17 in SLV. Here’s the morning chart for SLV, the US unleveraged silver ETF, showing the rise – then a modest retreat.

GE 2019-09-13 SLV premkt.png


Your friendly Gold Enthusiast has been pretty critical of the ECB and the Fed, so let’s look at the positive side for a moment. The purpose of lowering interest rates and giving banks access to cheaper money is to encourage banks to loan out more money, which spins into the economy and hopefully results in more people getting employed and spending the money. If there was a direct correlation there it would be great.

The problem is that all these financial machinations lose their impact over time. If businesses and regular people don’t see stimulus programs as creating better conditions for them, they stop doing things for the public good and start doing things for themselves.  Banks, for example, will use “easy money” to play paper trading games rather than loan money out to riskier small businesses, who employ actual people. The result is what we saw in 2008 – eventually, the paper game runs out and comes crashing down, hurting almost everyone along the way.

And of course, there’s the problem of increasing debt levels, which US Democratic presidential candidates seem to want to balloon ever larger. But that’s a problem we can easily understand, so we’ll leave deep discussion on that for another morning.

For the short term, we’re watching SLV to see if it holds 17, which should form a nice base for a future run-up next time the news hits critical-negative levels.


The Gold Enthusiast

DISCLAIMER: The author has no positions in any mentioned security. He is long the silver sector via small positions in USLV and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 72 hours.

The iShares Silver Trust (SLV) was trading at $16.98 per share on Thursday morning, up $0.03 (+0.18%). Year-to-date, SLV has gained 6.19%, versus a 13.56% rise in the benchmark S&P 500 index during the same period.

SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 33 ETFs in the Precious Metals ETFs category.

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About the Author: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.

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